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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
JUNE 30, 2002
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12 (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
RECLAMATION CONSULTING AND APPLICATIONS, INC.
Formerly Recycling Centers of America, Inc.
(Name of Small Business Issuer as specified in its Charter)
Colorado 84-0703717
(State of Incorporation) (IRS Employer ID No.)
23832 Rockfield Boulevard, Suite 275, Lake Forest, California 92630
(Address of Principal Executive Officees)
(949) 609-0590
(Registrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 11(g) of the Act:
12,211,523 Common Shares $0.01 Par Value
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TABLE OF CONTENTS
Page
PART I .............................................................. 2
ITEM 1 DESCRIPTION OF BUSINESS ...................................... 2
ITEM 2 DESCRIPTION OF PROPERTY ...................................... 6
ITEM 3 LEGAL PROCEEDINGS ............................................ 6
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS .............................................. 6
PART II .............................................................. 6
ITEM 5 MARKET OF COMMON EQUITY AND RELATED STOCK-
HOLDER MATTERS ....................................... 6
ITEM 6 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTSN OF OPERATIONS ..................7
ITEM 7 FINANCIAL STATEMENTS .................................F-2 - F-11
ITEM 8 CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ...................9
PART III ..............................................................9
ITEM 9 MANAGEMENT OF THE COMPANY; COMPLIANCE WITH
SECTION 16(a) .........................................9
ITEM 10 EXECUTIVE COMPENSATION .......................................13
ITEM 11 SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND
MANAGEMENT ...........................................13
ITEM 12 CERTAIN RELATIO SHIPS AND RELATED TRANSACTIONS ...............14
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K .............................14
SIGNATURES ...........................................................16
PART I
ITEM 1: DESCRIPTION OF BUSINESS
I. INTRODUCTION
Reclamation Consulting and Applications, Inc., a Colorado corporation
(refered to herein as "We" or the "Company" or the "Registrant" formerly
Recycling Centers of America, Inc.), which specializes in effective,
economical and environmentally safe chemicals and application/processing
systems for multiple industries.
Reclamation Consulting and Applications, Inc. is a Colorado corporation,
originally formed in 1976 under the name Vac-Tec Systems, Inc. and reorganized
as a public shell corporation without significant assets in early 1997, after
we ceased operations in the glass vacuum coating business.
In November of 1997, a merger transaction with Aquadynamic Technologies, Inc.
("ATI") was completed and ATI, a Minnesota corporation, became a wholly-owned
subsidiary of ours. ATI had no operations of its own prior to this merger,
but conducted business through two wholly-owned subsidiaries, Aquatek, Inc.
("AQT") and Wil-Flow, Inc., ("WFI"). WFI, on March 8, 1999, was dissolved
as a result of the settlement of a lawsuit between Registrant and Jack
Williams, the former owner and President of WFI. Under the terms of the
lawsuit settlement, WFI assigned certain technology and patents originally
developed for it by Williams back to Williams and paid Williams a fee of
$37,500, in exchange for Williams' release of all claims alleged against the
Registrant by Williams. In July of 2000, Aquatek, Inc., which provided
engineering services to wastewater treatment and potable water treatment
facilities, was sold back to its management for a cash price of $57,500.00.
In November of 1997, We entered into a joint venture agreement with Oil Re-
Refining Company ("ORRCO"), an Oregon corporation in order to enter the re-
refining industry, under the joint venture name of Energy & Material
Recovery. As management became more familiar with the oil re-refining
business, it determined that the enviromental risks and licensing
requirements of the industry made it a far less attracive industry in
which to operate than initially anticipated. As a result, management decided
to and did terminate the oil re-refining joint venture in October of 1999, and
We no longer have activities in this industry.
As a result of negotiations with Brody Special Projects, Inc., in December of
1999, We acquired all of the assets and business of Brody Special Projects,
Inc. We were introduced to Brody Special Projects by New Logic International,
the manufacturer of the VSEPT filtration technology previously marketed by
us. Brody operated a VSEPT test facility based in Salt Lake City, Utah where
many of the testing samples were analyzed. New Logic International, at that
time, worked with Brody Special Projects under a marketing and sales
agreement. This Agreemetn was non-transferable from Brody to RCAI. Brody
also held an agreeement with Pall Filter Corporation for their patented PallSepT
filtration technology that we currently market and sell.
2
In June of 1999, We acquired all the assets of a business conducted by Mr.
Bruce Selk. Mr. Selk was originally approached by us as an individual
operating his own company under the fictitious name, "Sierra Technologies".
Mr. Selk's company had a potential customer base for the sale of the VSEPT
filtration technology to the chemical and petroleum industies. He was
introduced to us through Energy and Material Recovery, Inc., at that time
a company owned 50% by us. As our interest in the vSEPT technology grew
stronger and management could see a viable marketing opportunity, we hired
Mr. Selk to introduce us to his potential mcustomer base, and we agreed to
acquire Mr. Selk's business. There was no pre-existing affiliation,and the
parties dealt at arms' length in their negotiation of the terms for acquisition
of Mr. Selk's business.
Under the informal agreement with Mr. Selk, the Registrant assumed all of
the liabilities of Sierra Technologies $(82,805), and was assigned all of the
business assets, $64,588, including its accounts receivable and its base of
customer accounts for brokered chemicals. The business customers acquired
included NewAlta Corp., Great Western Chemical, HCI Holchem, Molex Company,
MIH International, Pacific Epoxy Polymer, Destara Chemical, Tosco, Recycle
Reuse and Mid America Distillations. In November of 2000, Mr. Selk left our
management team to pursue other interests. In this connection, he took with
him his relationship based brokered chemical business.
There was no pre-existing relationship other than arms' length business
transactions between us and Mr. Selk or Brody Special Projects, Inc. prior to
our acquisitions.
II. BUSINESS
Our primary business at this date is the production and sale of AlderoxT
ASA-12T and applicator systems. ASA-12T is an asphalt/concrete release agent
that was developed by the Company in reponse to the industry's need for an
effective, economical and environmentally friendly product.
(a) Products and Services
(i) AlderoxT ASA-12T. The Company manufactures, sells and services
AlderoxT ASA-12T and proprietary applicator systems throughout the
United States. AlderoxT ASA-12T is a "ready to use" product that
allows asphalt to slide easily from truck beds; and concrete to
easily slide from molds. We have obtained goverbnment approval from
the Utah Department of Transportation for government use of ASA-12T
within the State and have applied for approval in Texas, Arizona,
Colorado, New Mexico, Nevada and California. The Company is
currently in the process of applying for approvals within other
States.
Management belileves the advantages of AlderoxT ASA-12T over its
competitors are as follows:
- 100% biodegradable
- Completely non-hazardous
- Easy applied (no dilution)
- Zero negative impact to equipment or asphalt/concrete
- Exclusive filming technology
- Proprietary applicator systems
(ii) AlderoxT ASA-12T. AlderoxT ASA-12T was designed for use in the
asphalt and concrete industries and is manufactured by and
proprietary to Reclamation Consulting and Applications, Inc. We have
not applied for a patent on this product and the ingredience and
formula are proprietary trade secrets of the company.
3
(b) Marketing & Sales
Our marketing program includes the development of compliance data,
sales materials, product demonstrations and daily phone leads.
Compliance Data is data performance We generated from on-site
pilot testing. This data specifically shows the characteristics of
asphalt release from trucks prior to applying AlderoxT ASA-12T and after
applying AlderoxT ASA-12T in comparison with other competitive products
currently used byour potential customers. We also utilize sales
representatives nationwide, who operate under contract to assist us in
locating prospective customers and servicing equipment. Reclemation
Consulting & Applications, Inc is currently in the process of
building a national sales infrastructure.
The Company currently works with the Utah Department of Trnsportation along
with local asphalt producers within the State of Utah. These
customers operate similar facilities throughout North America and
represent a significant portion of the asphalt market nationally. The
Company has developed an automated aplicator system at the request of
one of these customers to further assist with cost savings and to reduce
potential liability created by manually applying product to the truck
beds.
Current AlderoxT ASA-12T customers operate similar facilities both
nationally and internationally. We have been providng AlderoxT ASA-12T
within the State of Utah with the intent of providing product to our
same customers located in different states as we receive approval of
our product within those states. Other customers within the United
States will be approached through sales representatives.
We have been conducting on-site tests at Staker Paving in Utah the last
six months, which has led to the design and fabrication of our automated
drive-under applicator system for use with AlderoxT ASA-12T by Staker
Paving. This sytem was designed and developed at the request of
Staker Paving and Staker has offered the use of one of their asphalt
trucks to perfect the design prior to on- site testing and installation.
This customer is a producer of both asphalt and concrete in the United
States.
(c) Competition
We compete with over 60 other companies who have competing products,
many of whom are larger, with greater financial resources and larger
organizations.
Competition in this industry focuses on price, quality, features,
performance, specialization, expertise, reliabilty technology,
customer relationships, marketing, advertising, sales, publicity,
distribution, serving particular market niches, and appealing to
particiular consumers.
4
(d) Raw Materials
Our product is produced by the Company using 100% natural additives, and
no water. The material formula used in AlderoxT ASA-12T is
proprietary and exculsive to the Company. One of the raw materials for
the product is difficult to obtain. This raw material is purchased by the
Company by contract from a sole service supplier.
(e) Dependence on a Few Customers
There is no single customer that currently or in the future is
expected to dominate our business.
(f) Patents, Trademarks, Licenses, etc.
(i) Trade Secets, Patents and Trademarks
We have one (1) Trade Secret and two (2) trademarks. Our Trade
Secret is for the ingredients and production method of our
proprietary product, AlderoxT ASA-12T. Our Trademarks are both
Alderox(TM and ASA-12T
(g) Government Regulation
There are certain government regulations through State aprovals for
asphalt release agents on a State by State basis. Each State has their
own approval process with some more stringent than others. This process
is to assure the states that the products that are approved meet
certain environmental regulations. Our customers are responsible
for compliance with these regulations, and we have not assumed any
responsibility for compliance as a provider of product to our customer.
(h) After Market Sales Responsibility
The Company provices the customer with a one year equipment warranty that
the equipment will be free from defects in material and workmanship, etc.
(i) Research and Development
The technology and products sold by us are in the early stages of
market acceptance. As a result, in order to accomplish a sale, a
customer will typically require a significant research and development
effort, in the form of testing and trials. These costs are funded in
part by us, and expensed as a sales expense.
In addition, management believes there may be additional undiscoverd
applicatons for the AlderoxT ASA-12T product and our aplicator systems.
The company is currently exploring additional markets, utilizing onsite
pilot testing. These specific tests determine the feasibility of the
prospective application and allow our engineers to select specific
parameters and product selection. This information is used in
preparing sales proposals for the customer's consideration.
Typically, We do not charge for onsite testing.
(j) Employees
We have seven full time employees, including two located in California, and
five located in Utah.
5
Item 2. DESCRIPTION OF PROPERTY
We own no real property or personal property.
Facilities
Our corporate offices are located at 23832 Rockfield Blvd., Suite 275 Lake
Forest, CA 92630. We are under a 3-year lease agreement for the 876 square feet
offices ending April 2005. Our monthly lease payments are $1,784.
Our manufacturing warehouse is located at 3558 South 900 West, Salt Lake
City, UT 84104. We are under a 5-year lease for this 12,020 square feet
warehouse ending June 2007. Our monthly lease payments are $5,149.70.
Item 3. LEGAL PROCEEDINGS.
Nothing to Report
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On January 14, 2002, acting through the use of a written consent executed by
more than 50% in capital interest of the company's outstanding shares, the
shareholders approved an amendment to the company's Articles of Incorporation to
change its name to Reclamation Consulting And Applications, Inc. On January 16,
2002 an amendment to the company's Articles of Incorporation were filed,
formally changing the company's name to Reclamation Consulting And Applications,
Inc.
Part II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades over-the-counter in the Pink Sheets
under the symbol "RCAI". The closing sales price as of Jun 30, 2002, was $0.30.
Set forth below is the high and low bid information for the Company's
Common Stock for each full quarterly period within the two most recent fiscal
years.
High Low High Low
Period Bid Bid Ask Ask
4th Quarter 2001/2002 0.30 0.22 0.49 0.35
3rd Quarter 2001/2002 0.55 0.28 0.83 0.55
2nd Quarter 2001/2002 0.42 0.36 0.55 0.43
1st Quarter 2001/2002 0.51 0.37 0.63 0.52
4th Quarter 2000/2001 1.03 0.50 1.56 1.06
3rd Quarter 2000/2001 1.4375 0.75 1.5625 1.002
2nd Quarter 2000/2001 0.58 0.27 0.79 0.35
1st Quarter 2000/2001 0.80 0.51 1.00 0.75
4th Quarter 1999/2000 1.2500 0.3125 1.3750 0.5313
3rd Quarter 1999/2000 0.7500 0.2500 1.0000 0.3125
2nd Quarter 1999/2000 0.9375 0.8125 1.4375 1.4375
1st Quarter 1999/2000 1.9375 0.5313 2.1875 0.9375
4th Quarter 1998/1999 0.8750 0.2500 1.0625 0.4375
3rd Quarter 1998/1999 1.00 0.5625 1.0625 0.75
2nd Quarter 1998/1999 1.75 0.6875 2.125 1.00
1st Quarter 1998/1999 2.3125 0.3125 2.50 1.0625
At March 1, 2001, the Company had approximately 645 Shareholders of record.
6
Item 6. MANAGEMENT DISCUSSION AND ANALYSIS JUNE 30, 2002 AND 2001
Statement of Operations
The Company has incurred net losses of $1,972,523 for twelve months ended
June 30, 2002 as compared to a net loss of $1,427,205 for the twelve months
ended June 30, 2001. The losses for the twelve months ended June 30, 2002 and
2001 can be attributed in part to significant costs incurred in the introduction
of the Company's filtration technologies to the marketplace. The Company is in
testing with two large corporations in the dairy industry. Management is
optimistic that upon successful completion, these tests will lead to contracts,
which will begin to generate sufficient revenues to cover the Company's
operating expenses. In addition, the Company continues to grow its chemical
business through the introduction and sale of its proprietary product AlderoxTM
ASA-12TM.
The revenues for the twelve months ending June 30, 2001 have been primarily
from the sale of recycling equipment to Dairy Farmers of America and Leprino
Foods. The total revenue generated from these sales for the twelve months ended
June 30, 2001 amounted to $367,219. The revenues for the twelve months ending
June 30, 2002 amounting $217,677 are from engineering consulting and chemical
sales to a more diverse base of customers and totaled $217,677.
The Cost of Goods Sold represents one hundred and twenty one percent (121
%) of sales for the twelve months ending June 30, 2002 as compared to forty six
percent (46 %) as of June 30, 2001. The Costs of Goods are not consistent
between years as a result of the varying sources, which created sales revenues
in each year; in 2001 sales were primarily from recycling equipment. There was
only contract revenue from engineering services and chemical sales in 2002.
Operating expenses consist primarily of general and administrative
expenses. For the twelve months ended June 30, 2002 operating expenses totaled
$1,545,330 as compared to $1,274,797 for the twelve months ended June 30, 2001.
The increase in operating expenses between the years of $270,533 can be
primarily attributed to the development of the Company's asphalt release agent
AlderoxTM ASA-12TM. Consulting fees of $250,509 were attributed to the cost of
the development of new products and the raising of capital to finance new
products.
7
Interest expense and other finance charges increased from $306,173 for the
twelve months ended June 30, 2001 to $469,076 for the twelve months ended June
30, 2002. The increase between years can be attributed to the increase in Notes
payable between years.
Liquidity and Capital Resources
As of June 30, 2002 the Company had cash and cash equivalents of $1,675. as
compared to cash and cash equivalents of $12,604 as of June 30, 2001. At June
30, 2002, the Company had a working capital deficiency (total current
liabilities in excess of total current assets) of $516,875. as compared to a
working capital deficit (total current liabilities in excess of total current
assets) of $514,071as of June 30, 2001.
The principal use of cash for the twelve months ended June 30, 2002 and 2001 was
to fund the net loss from operations. The Company through a 506 D Offering
received additional capital of $12,144 from the issuance of Convertible
Debentures in the 12 months ending June 30, 2002. The Company received
additional capital of $801,723 in the twelve months ended June 30, 2002 from the
private sale of common stock.
The management of the Company is endeavoring to cover operating expenses in
excess of revenues of the Company until adequate sales are generated, through
the private sale of additional shares, but there is no insurance of success in
such placement. Management projects that the Company may become profitable and
begin to generate sufficient cash flow to meet its monthly operating expenses
sometime during the third quarter of the current fiscal year, but can not
guarantee this result. The Company's monthly operating expenses currently
average approximately $60,000 per month. In addition to the raising of capital
through the 506 D Offering, the company has secured an operating line of credit
from Canvasback Company Limited in the amount of $650,000.
Item 7. FINANCIAL STATEMENTS
CONTENTS
PAGE
Independent Auditors' Report ............................................... F-2
Balance Sheets ............................................................. F-3
Statement of Operations .................................................... F-4
Statements of Stockholders' Equity (Deficit) ............................... F-5
Statements of Cash Flows ................................................... F-6
Notes to the Financial Statements ................................... F-7 - F-16
================================================================================
8
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Reclamation Consulting and Applications, Inc.
We have audited the accompanying balance sheet of Reclamation Consulting and
Applications, Inc. (formerly, Recycling Centers of America, Inc.) (a Colorado
corporation) and subsidiaries as of June 30, 2002 and the related statements of
operations, stockholders' deficit, and cash flows for the year ended June 30,
2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Reclamation Consulting and
Applications, Inc. and subsidiaries as of June 30, 2002, and the results of its
operations and its cash flows for the year ended June 30, 2002 in conformity
with accounting principles generally accepted in the United States of America.
The Company's financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has a stockholders deficit incurred due to recurring
losses from operations in the years ended June 30, 2002 and 2001. These factors
as discussed in Note 16 to the financial statements, raises substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 16. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 13, the 2001 financial statements have been restated.
KABANI & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Fountain Valley, California
September 27, 2002
<page>F-2
RECLAMATION CONSULTING AND APPLICATION, INC.
(FORMERLY, RECYCLING CENTERS OF AMERICA, INC.)
BALANCE SHEET
JUNE 30, 2002
ASSETS
<table>
<caption>
<s> <c>
CURRENT ASSETS:
Cash & cash equivalents $ 1,675
Accounts receivable 72,062
Prepaid expense 8,014
Inventory 236,919
-------
Total current assets 318,670
PROPERTY AND EQUIPMENT, net 75,915
-------
$ 394,585
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued expense $ 341,603
Note payable - shareholders 339,838
Convertible loans - shareholders 97,000
--------
Total current liabilities 778,441
Convertible loans - shareholders 57,104
CONVERTIBLE DEBENTURE 260,627
---------
Total liabilities $ 1,096,172
==========
COMMITMENTS
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value;
Authorized shares 75,000,000,
12,211,523 shares issued and outstanding 122,495
Additional paid in capital 5,011,575
Treasury stock (15,000)
Shares to be issued 1,050,594
Accumulated deficit (6,871,251)
----------
Total stockholders' deficit (701,587)
==========
$ 394,585
The accompanying notes are an integral part of these financial statements.
</table>
<page>F-3
RECLAMATION CONSULTING AND APPLICATION, INC.
(FORMERLY, RECYCLING CENTERS OF AMERICA, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2002 AND 2001
<table>
<caption>
<s> <c> <c>
2002 2001
(Restated)
--------- ----------
Net revenue $ 217,677 $ 367,219
Cost of revenue 264,089 171,303
Gross profit (loss) (46,412) 195,916
---------- ---------
Total operating expenses 1,234,733 1,274,797
Loss from operations (1,281,145) (1,078,881)
Non-operating income (expense):
Interest expense (2001 restated) (500,604) (306,173)
Other income - 97,064
---------- ----------
Loss from continuing operations before income tax, (1,781,749) (1,287,990)
discontinued operations & extraordinary item
Provision for income tax 800 800
---------- -----------
Loss from continuing operations before
extraordinary item (1,782,549) (1,288,790)
Discontinued operations (Note 2):
Loss on disposal of subsidiary, net (2001 restated) - (138,415)
---------- -----------
(1,782,549) (1,427,205)
Extraordinary item - Gain on settlement of debts,
net of tax 41,250 -
---------- -----------
Net loss (2001 restated) $ (1,741,299) $ (1,427,205)
=========== ===========
Basic and diluted weighted average shares outstanding 11,641,049 10,222,815
Basic and diluted net loss per share (2001 restated):
Continuing operations $ (0.15) $ (0.13)
=========== ===========
Discontinued operations $ - $ (0.01)
=========== ===========
Extraordinary items $ 0.00 $ -
=========== ===========
Net loss $ (0.15) $ (0.14)
=========== ===========
The accompanying notes are an integral part of these financial statements.
</table>
<page>F-4
RECLAMATION CONSULTING AND APPLICATION, INC.
(FORMERLY, RECYCLING CENTERS OF AMERICA, INC.)
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 2002 AND 2001
<table>
<caption>
<s> <c> <c> <c> <c> <c> <c> <c>
Total
Common stock Additional Stock to Accumulated stockholders'
Number of paid in capital Treasury be issued deficit deficit
shares Amount (Restated) stock (Restated) (Restated) (Restated)
Balance at June 30, 2000 (Restated) 8,380,366 $84,184 $3,067,505 $ (15,000) $ - $(3,702,747) $ (566,058)
Issuance of shares for cash (Restated) 1,512,941 15,129 613,132 - 414,220 - 1,042,481
Debenture conversion provision (Restated) - - 285,536 - - 285,536
Net loss for the year ended June 30, 2001
(Restated) - - - - - (1,427,205) 1,427,205)
--------- -------- --------- --------- ---------- ------------- ----------
Balance at June 30, 2001 (Restated) 9,893,307 99,313 3,966,173 (15,000) 414,220 (5,129,952) (665,246)
Issuance of shares for cash 1,674,395 16,744 669,985 - (414,220) - 272,509
Issuance of shares for convertible loans 78,821 788 30,740 - - - 31,528
Issuance of shares for service 265,000 2,650 92,000 - - - 94,650
Issuance of shares for compensation 300,000 3,000 105,000 - - - 108,000
Options granted for compensation and
services 147,677 - - - 147,677
743,594 shares of common stock to be issued
for cash - - - - 297,438 - 297,438
1,875,000 shares of common stock to be
issued for debt - - - - 708,750 - 708,750
153,125 shares of common stock to be issued
for services - - - - 44,406 - 44,406
Net loss for the year ended June 30, 2002 (1,741,299) (1,741,299)
---------- -------- ----------- --------- ---------- ----------- -----------
Balance at June 30, 2002 12,211,523 $122,495 $5,011,575 $(15,000) $1,050,594 $(6,871,251) $ (701,587)
========== ======== =========== ========== ========== =========== ===========
</table>
The accompanying notes are an integral part of these financial statements.
<page>F-5
RECLAMATION CONSULTING AND APPLICATION, INC.
(FORMERLY, RECYCLING CENTERS OF AMERICA, INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2002 AND 2001
<table>
<caption>
<s> <c> <c>
2002 2001
(Restated)
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,741,299) $ (1,427,205)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 8,000 30,000
Issuance of shares for services and compensation 202,650 -
Issuance of shares for convertible loans 31,528 -
Option granted for compensation and services 147,677 -
Debenture conversion provision
Shares to be issued for services 44,406 -
Loss on disposal of subsidiary
Gain on settlement of debts (41,250) -
(Increase) / decrease in current assets:
Accounts receivable 109,717 (35,374)
Inventory (165,791) (23,394)
Other assets 4,306 (2,427)
Increase / (decrease) in current liabilities:
Accounts payable and accrued expense (189,496) 645
----------- ---------
Total adjustments 151,747 393,401
----------- ----------
Net cash used in operating activities (1,589,552) (1,033,804)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (61,850)
Conversion of equipment - 117,095
----------- ----------
Net cash provided by (used in) investing activities (61,850) 117,095
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Aquatek sale to management - (138,415)
Pall financing of equipment sales - 128,277
Proceeds/(payments) of convertible debenture 12,144 (67,375)
Proceeds/(payments) of shareholder loans 873,302 (41,226)
Proceeds from other loans 185,080 -
Cash received for shares to be issued 297,438 -
Common stock issuance for cash 272,509 1,042,481
---------- ----------
Net cash provided by financing activities 1,640,473 923,742
---------- -----------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (10,929) 7,033
CASH & CASH EQUIVALENTS, BEGINNING BALANCE 12,604 5,571
---------- -----------
CASH & CASH EQUIVALENTS, ENDING BALANCE $ 1,675 $ 12,604
=========== ===========
The accompanying notes are an integral part of these financial statements.
</table>
<page>F-6
RECLAMATION CONSULTING AND APPLICATIONS, INC.
(FORMERLY, RECYCLING CENTERS OF AMERICA, INC.)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATIONS AND DESCRIPTION OF BUSINESS
Reclamation Consulting and Applications, Inc. (formerly, Recycling Centers of
America, Inc.) (the "Company") is a Colorado corporation, originally formed in
1976 under the name of Vac-Tech Systems, Inc. The Company changed its name to
Recycling Centers of America on March 26, 1999. On January 16, 2002, articles
of amendment was filed to change the name of corporation to Reclamation
Consulting and Applications, Inc. The Company as of June 30, 1998 had a wholly
owned subsidiary Aquadynamic Technologies, Inc. (ATI). ATI had two subsidiaries,
Aquatek, Inc. and Wil-Flow, Inc. Wil-flow, Inc., on March 8, 1999, was dissolved
and the patents on the technology were returned to its former owner and
president as a result of the resolution of a lawsuit between the parties. In
July of 2000, Aquatek, Inc., was sold back to its management for a cash purchase
price of $57,500.
Presently, the Company's primary business is production and sale of AlderoxTM
ASA-12TM and applicator systems. ASA-12TM is an asphalt/concrete release agent
that was developed by the Company in response to the industry's need for an
effective, economical and environmentally friendly product.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial statements
follows:
Cash and cash equivalents
The Company considers all liquid investments with a maturity of three months or
less from the date of purchase that are readily convertible into cash to be cash
equivalents.
Accounts Receivable:
The Company's customer base consists of a geographically dispersed customers
base. The Company maintains reserves for potential credit losses on accounts
receivable. Management reviews the composition of accounts receivable and
analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Reserves are recorded primarily on a
specific identification basis.
Inventories
Inventories, comprising mostly of finished goods, are stated at the lower of
cost (first-in, first-out method) or market.
<page>F-7
Property & Equipment
Property and equipment is carried at cost. Depreciation of property and
equipment is provided using the straight-line method for substantially all
assets with estimated lives of three to seven years.
Expenditures for maintenance and repairs are charged to expense as incurred.
Income taxes
The Company and its wholly owned subsidiaries are organized as C-corporations.
The Company does not file consolidated tax returns and the subsidiary Companies
have not filed tax returns since 1999. The Company accounts for income taxes
under Statement of Financial Accounting Standards No. 109 (SFAS 109). Under SFAS
109, deferred income taxes are reported using the liability method. Deferred
tax assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
Revenue Recognition
The Company recognizes its revenue in accordance with the Securities and
Exchange Commissions ("SEC") Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). Revenue is recognized when
merchandise is shipped to a customer.
Principles of Consolidation
The consolidated financial statements include the accounts of Company for the
fiscal year 2002 and accounts of the Company and its subsidiary, Aquadynamic
Technologies, Inc. and its wholly owed subsidiaries Aquatek, Inc. for the fiscal
year 2001. All material inter-company balances and transactions including
investments in subsidiaries have been eliminated.
Using Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
<page>F-8
Fair Value of Financial Instruments
Statement of financial accounting standard No. 107, Disclosures about fair value
of financial instruments, requires that the Company disclose estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying, as
financial instruments are a reasonable estimate of fair value.
Earnings per share
Net loss per share is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS No. 128), "Earnings per share". Basic net
loss per share is based upon the weighted average number of common shares
outstanding. Diluted net loss per share is based on the assumption that all
dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period.
Weighted average number of shares used to compute basic and diluted loss per
share is the same in this financial statements since the effect of dilutive
securities is anti-dilutive.
Stock-based compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The company uses the intrinsic value method prescribed by APB25 and has
opted for the disclosure provisions of SFAS No.123.
Issuance of shares for service
The Company accounts for the issuance of equity instruments to acquire goods and
services based on the fair value of the goods and services or the fair value of
the equity instrument at the time of issuance, whichever is more reliably
measurable.
<page>F-9
Segment Reporting
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure
About Segments of an Enterprise and Related Information" requires use of the
"management approach" model for segment reporting. The management approach model
is based on the way a company's management organizes segments within the company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company.
Currently, SFAS 131 has no effect on the Company's consolidated financial
statements as substantially all of the Company's operations are conducted in one
industry segment.
Recent Pronouncements
On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." These statements make
significant changes to the accounting for business combinations, goodwill, and
intangible assets.
SFAS No. 141 establishes new standards for accounting and reporting requirements
for business combinations and will require that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
Use of the pooling-of-interests method will be prohibited. This statement is
effective for business combinations completed after June 30, 2001.
SFAS No. 142 establishes new standards for goodwill acquired in a business
combination and eliminates amortization of goodwill and instead sets forth
methods to periodically evaluate goodwill for impairment. Intangible assets with
a determinable useful life will continue to be amortized over that period. This
statement became effective from January 1, 2002.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations". SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. This Statement is effective for financial
statements issued for fiscal years beginning after June 15, 2002.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
was issued in August 2001. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001, and addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. This statement supersedes SFAS
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," for the disposal of a segment of a business.
The Company does not expect that the adoption of above pronouncements will have
a material effect on its earnings or financial position.
In May 2002, the Board issued SFAS No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS
145"). SFAS 145 rescinds the automatic treatment of gains or losses from
extinguishments of debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in APB Opinion No. 30, Reporting the Results of
Operations, Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS
145 also requires sale-leaseback accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions and makes
various technical corrections to existing pronouncements. The provisions of SFAS
145 related to the rescission of FASB Statement 4 are effective for fiscal years
beginning after May 15, 2002, with early adoption encouraged. All other
provisions of SFAS 145 are effective for transactions occurring after May 15,
2002, with early adoption encouraged. The Company does not anticipate that
adoption of SFAS 145 will have a material effect on our earnings or financial
position.
<page>F-10
In June 2002, the FASB issued SFAS No. 146 " Accounting for Costs Associated
with exit or Disposal Activities." This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under Issue 94-3 a
liability for an exit cost as defined, was recognized at the date of an entity's
commitment to an exit plan. The Company does not anticipate that adoption of
SFAS 146 will have a material effect on our earnings or financial position.
3. ACCOUNTS RECEIVABLE
All accounts receivable are trade related. These receivables are current and
collection is fully expected. No reserve for uncollectable accounts is deemed
necessary.
4. PROPERTY AND EQUIPMENT
Property and Equipment consisted of the following at June 30, 2002:
Property and Equipment consisted of the following at June 30, 2002:
2002
-------
Computers and Office Equipment $ 41,834
Test Equipment 82,207
-------
124,041
Less accumulated depreciation (48,126)
-------
Balance $ 75,915
=======
Depreciation expense was $8,000 and $30,000 for the year ended June 30, 2002
and 2001.
5. NOTES PAYABLE - SHAREHOLDERS
Notes payable consisted of the following at June 30, 2002:
Loan Payable to Shareholders bearing
interest rate of 10 % payable in restricted
stock of the Company, unsecured and payable on demand $ 115,763
Loan Payable to shareholder non-interest
bearing, paid back on 7/1/02 25,000
Note Payable to Pall Filter, non-interest
bearing, settled in July, 2002 199,075
-------
Total $ 339,838
=======
<page>F-11
6. CONVERTIBLE LOANS-SHAREHOLDERS
The Company has loans amounting $57,104 convertible to restricted common stock
at $.45 per share. The loans bear interest at ten percent (10%) per annum
payable semi annually beginning January 15, 2002. The term of the loans are 3
years and has been classified as long tern loans in the financial statements.
All investor received one share at inception of the loan. The Company recorded
$22,842 for 57,104 shares issued as interest expense.
The Company has a loan amounting $17,000 convertible in to restricted common
stock at $.40 per share. The loan bears interest at twelve percent (12%) per
annum. The term of the loan was 30 days. Subsequent to the year ended June 30,
2002, the loan was converted in to 42,500 common stock of the Company.
The Company has a loan amounting $80,000 convertible to restricted common stock
at $.40 per share. The loans bear interest at ten percent (10%) per annum. The
loan was due in two lump-sum payments at 90 days and 180 days from the
investment date. Subsequent to the year ended June 30, 2002, the loan was
converted in to 200,000 common stock of the Company.
7. RELATED PARTY TRANSACTIONS
Certain of the Company's major shareholders have loaned money to the Company at
various times. These loans bear interest at ten percent (10%) per annum. The
Company converted $750,000 of these notes out of total notes of $865,763, into
common stock during the fiscal year 2002. The shares were not issued as of June
30, 2002 and therefore have been classified as shares to be issued for $708,750.
The shares have been valued at the market price at the time of conversion. The
conversion resulted in a gain of $41,250 to the Company.
8. COMMITMENTS
The Company conducts its operations utilizing leased facilities and equipment
under noncancellable operating lease agreements expiring at various dates
through the year 2007. Future minimum lease commitments, excluding property
taxes and insurance, are approximately as follows:
Year ending June 30,
--------------------
2003 $ 61,676
2004 73,195
2005 59,598
2006 61,386
2007 57,814
----------------
Total $ 313,669
Rent expenses for all leased facilities and equipment were $28,921 and $24,590
for the year ended June 30, 2002 and 2001, respectively.
<page>F-12
9. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The majority of the Sales in 2002 and 2001 are to a few customers. At June 30,
2002, the total sale to four major customers was $146,249 and the receivable
balance from these major customers was $36,536. In fiscal year 2001, the largest
one customer comprised approximately $144,276 of the Company's accounts
receivable. Management believes that customer acceptance, billing, and
collection policies are adequate to minimize potential risk on trade
receivables.
10. ACQUISITION OF SIERRA TECHNOLOGIES
On June 1, 1999 the Company purchased Sierra Technologies, Inc whose business
includes purchasing, treatment and brokerage of chemical and petroleum products
throughout North America. The net purchase price was $22,299, which represents
the difference between the amount owed to Sierra Technologies vendors and the
Accounts Receivable due from its customers. In September 2000 the President of
Sierra Technologies, Inc. resigned as Chief Executive Officer of Recycling
Centers of America, Inc. to pursue other interests. He took with him his
relationship based brokered chemical business. The financial statements for the
year ended June 30, 2002 and 2001 do not show any asset or operation from Sierra
Technologies, Inc.
11. INCOME TAXES
No provision was made for Federal income tax since the Company has significant
net operating loss carryforwards. Through June 30, 2002, the Company incurred
net operating losses for tax purposes of approximately $6,800,000. The net
operating loss carryforwards may be used to reduce taxable income through the
year 2017. Net operating loss for carryforwards for the State of California are
generally available to reduce taxable income through the year 2007. The
availability of the Company's net operating loss carryforwards are subject to
limitation if there is a 50% or more positive change in the ownership of the
Company's stock. The provision for income taxes consists of the state minimum
tax imposed on corporations.
Temporary differences which give rise to deferred tax assets and liabilities at
June 30, 2002 comprised of depreciation and amortization and net operating loss
carry forward. The gross deferred tax asset balance as of June 30, 2002 was
approximately $2,720,000. A 100% valuation allowance has been established
against the deferred tax assets, as the utilization of the loss carrytforwards
cannot reasonably be assured.
The following is a reconciliation of the provision for income taxes at the U.S.
federal income tax rate to the income taxes reflected in the Consolidated
Statements of Operations:
June 30, June 30,
2002 2001
------- ------
Tax expense (credit) at statutory rate-federal (34)% (34)%
State tax expense net of federal tax ( 6) ( 6)
Permanent differences 1 1
Changes in valuation allowance (39) (39)
------- ------
Tax expense at actual rate - -
======= ======
<page>F-13
12. CONVERTILBE DEBENTURES
The Company through a 506 D Securities Offering has solicited investment funds.
The Convertible Debentures bear interest at ten percent (10%) per annum payable
annually and are convertible into restricted common shares of the Company at
$.40 cents per share. The Company has the right to change the conversion price
of the debentures. The Debentures are unsecured and are due and payable by
December 31, 2005.
13. PRIOR PERIOD ADJUSTMENTS
Subsequent to the issuance of the Company's consolidated financial statements
for the year ended June 30, 2001, the Company determined that certain
transactions and presentation in the financial statements had not been accounted
for properly in the Company's financial statements. The Company's 2001 financial
statements have been restated to correct errors as follows:
(1) The failure to record the debenture conversion provision of $285,536.
(2) The failure to include the loss on disposal of a subsidiary amounting
$138,415 in the income statement.
(3) Incorrect recording of stock to be issued amounting $414,220.
The effect of the correction of these errors is as follows:
AS PREVIOUSLY AS
Year ended June 30, 2001 REPORTED RESTATED
STATEMENT OF SHAREHOLDERS' DEFICIT
Accumulated deficit: $ (4,844,416) $ (5,129,952)
Additional paid-in capital $ - $ 3,966,173
Common stock $ 4,193,790 $ 98,933
Stock to be issued $ - $ 414,220
STATEMENT OF OPERATIONS:
Interest expense $ 20,637 $ 306,173
Loss on disposal of subsidiary $ - $ 138,415
Net loss $ (1003,254) $ (1,427,205)
<page>F-14
14. STOCKHOLDERS' EQUITY
Common Stock:
During the fiscal year 2002, the Company issued 1,674,395 shares of common stock
for cash amounting $686,729 (including $414,220 which was received in 2001 and
has been reflected as to be issued in the financial statements at June 30, 2001)
and 78,821 shares of common stock for interest and loan incentives amounting
$31,528.
The Company issued 265,000 shares of common stock for services in fiscal year
2002 for services amounting $94,650 and 300,000 shares of common stock for
compensation amounting $108,000.
The Company issued 1,512,941 shares for cash amounting $628,261 during the
fiscal year 2001. The Company received cash of $414,220 for shares to be issued
as of June 30, 2001.
The Company received cash of $297,438 for 743,594 shares to be issued and
consulting expenses of $44,406 were recorded for 153,125 shares to be issued in
the fiscal year 2002.
The Company converted $750,000 notes from a related party to 1,875,000 shares of
common stock to be issued in the year ended June 30, 2002 (note 7).
Stock Options:
The number and weighted average exercise prices of options granted by the
Company are as follows:
Options Outstanding
Number Weighted
of Average
Options Exercise
Price
--------- --------
Options outstanding June 30, 2001 - -
Granted during the year 8,083,958 $ 0.40
Exercised - -
Expired/forfeited (528,750) (0.40)
--------- --------
Outstanding June 30, 2002 7,555,208 $ 0.40
========= ========
<page>F-15
The weighted average remaining life of options outstanding is 3.59 years.
Options exercisable and their weighted average exercise price are 5,405,208 and
$0.40 respectively. The weighted average grant date exercise price was $0.40 and
the weighted average grant date fair value of all options granted was $0.39. The
weighted average fair value of options granted whose exercise price was equal
to, exceeded or was less than the grant date stock price was $.19, $ .25 and
$.04, respectively.
The Company granted options to various consultants for services rendered. These
options were accounted for using the fair value of the options granted based on
the Black- Scholes option-pricing model. The Company recorded $42,675 as
consulting expense.
The Company accounts for stock based compensation to employees under APB 25
using the intrinsic value method.
Pro forma information regarding the effect on operations is required by SFAS
123, and has been determined as if the Company had accounted for its employee
stock options under the fair value method of that statement. Pro forma
information using the Black-Scholes method at the date of grant based on the
following assumptions:
Expected life (years) 1-5 years
Risk-free interest rate 5.0%
Dividend yield -
Volatility 0.5
Proforma information regarding net loss and loss per share, pursuant to the
requirements of FASB 123 for the years ended June 30, 2002 and 2001 are as
follows:
2002
------------------------
Historical Proforma
---------- --------
Net loss $ 1,741,299 $ 1,973,075
--------- ---------
Net loss per share -
basic and diluted $ (.15) $ (.17)
--------- ---------
In addition, the Company granted 1,875,000 options to a lender as an incentive
to convert its loan in common stock. The company recorded $375,000 as additional
interest expense on the loan. The Company also granted an option to purchase
100,000 shares to the same lender in connection with a line of credit. The
company recorded additional interest of $13,000. The interest expense
represented the fair value of the options granted based on assumptions described
above.
<page>F-15
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method as
defined under the Financial Accounting Standard No. 95.
The Company paid income taxes of $0 and interest of $23,148 during the fiscal
year 2002. The Company paid income taxes of $0 and interest of $0 during the
fiscal year 2001.
Supplemental disclosure of non-cash investing and financing activities:
The cash flow statements do not include following non-cash investing and
financing activities:
During the fiscal year 2002, the Company recorded 1,875,000 shares of common
stock for debt settlement valued $708,750 for stock to be issued.
The Company issued 78,821 shares of common stock for incentives on convertible
loans in fiscal year 2002 amounting $31,528.
The Company issued 265,000 shares of common stock for services in fiscal year
2002 for services amounting $94,650 and 300,000 shares of common stock for
compensation amounting $108,000.
The Company recorded for 153,125 shares to be issued in the fiscal year 2002 for
consulting expenses of $44,406.
16. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of business. Through June 30, 2002, the Company had incurred
cumulative losses of $6,871,251 including net losses of $1,741,299 and
$1,427,205 for the fiscal years 2002 and 2001. The Company had negative working
capital of $459,771 at June 30, 2002. The continuing losses have adversely
affected the liquidity of the Company.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to raise additional capital, obtain
financing and to succeed in its future operations. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern. Management devoted considerable effort
during the period ended June 30, 2002, towards (i) obtaining additional equity
financing (ii) controlling of salaries and general and administrative expenses
(iii) management of accounts payable and (iv) evaluation of its distribution and
marketing methods.
17. SUBSEQUENT EVENTS
The Company issued 2,239,180 shares of common stock subsequent to June 30, 2002.
743,594 shares were issued for cash amounting $297,438, 916,146 shares were
issued for services amounting $265,682 and 579,440 shares of common stock in
conversion of debt amounting $231,776.
<page>F-16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On July 8, 2002, Stuart Rubin, the Company's outside independent accountant was
dismissed by the Company. Stuart Rubin's opinion for the Company's fiscal year
ended June 30, 2001, contained a qualification that the Company continues to do
business.
On July 8, 2002, the Company retained Kabani & Company, Inc. as its new outside
independent accountant. The decision to change accountants was made by
unanimous decision of the Company's Board of Directors.
There was no disagreement by the Company with the former outside independent
accountant.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The names, ages and positions of the directors and executive officers
of the Company as of June 30, 2000, are as follows:
NAME AGE POSITION SINCE
- ---------------------------------------------------------------------------
Michael C. Davies 32 Chief Financial Officer, Dec. 1997
Vice President and a Director
Gordon W. Davies 33 President and a Director Dec. 1997
The Directors serve until the next annual meeting of shareholders, or
until their successors are elected.
9
MR. MICHAEL C. DAVIES
From 1988 to 1991 Mr. Davies was the Owner/Manager of Fuel Oil
Polishing Company located in Vancouver, British Columbia, Canada. Mr. Davies'
company was in the sales, marketing and project management of fuel oils
polishing within the Province of British Columbia.
From 1991 to 1993 he was an Accounts Executive with Innovative
Environmental Services, Ltd. in Vancouver, a company in the business of sales
and marketing of wastewater treatment equipment.
From 1993 to 1994 he was the Marketing Manager for Transenviro, Inc.,
located in Irvine, California. Transenviro is an international supplier of
wastewater treatment equipment and process design engineering.
From 1994 to 1996 Mr. Davies was the Marketing Manager for Babcock
King-Wilkinson, LP, Irvine, California, a wastewater treatment business.
From 1996 to 2000 Mr. Davies has held the positions of Vice
President and a Director for Aquadynamic Technologies, Inc. and Aquatek, Inc.,
which is a wholly owned subsidiary of Aquadynamic Technologies. Aquadynamic
Technologies, Inc. was acquired by Registrant and became Registrant's wholly-
owned subsidiary in November of 1997.
From 1996 to 1998 Mr. Davies held the position of Vice President,
Sales/Director for Wil-Flow, Inc., the sole supplier of its patented RGD
(Rapid Gravity Dewatering) wastewater sludge dewatering system.
From 1997 to the present, Mr. Davies has been the Vice President,
Chief Financial Officer and a Director. Mr. Davies is the brother of Gordon
Davies.
10
MR. GORDON W. DAVIES
From 1991 to 1994 Mr. Davies was an Accounts Executive for Innovative
Environmental Services, Ltd., located in Vancouver, British Columbia, which is
a company in the business of wastewater treatment equipment.
From 1993 to 1993 he held a Sales Manager position at Transenviro,
Inc. in Irvine, California. From 1994 to 1996, Mr. Davies was the
Sales/Marketing & Proposals Manager for Babcock King-Wilkinson, LP in Irvine,
California, and in 1996 he was the acting CEO for this company. Babcock King-
Wilkinson, LP is in the business of process design/engineering and equipment
supply operations on a worldwide basis.
From 1996 to 2000 Mr. Davies has been the President and a
Director of Aquadynamic Technologies, Inc. He is also a Director of Aquatek,
Inc., the wholly-owned subsidiary of Aquadynamic Technologies, Inc. Aquatek,
Inc. is an engineering design house and supplier of computer-automated process
and motor control systems for water and wastewater treatment systems.
From 1996 to 1998 Mr. Davies was the General Manager of Wil-Flow, Inc.
From 1997 to the present, Mr. Davies has held the position of
President and a Director for us. Gordon Davies is the brother of Michael
Davies.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company has received no filings under Section 16(a) of the Securities
Exchange Act of 1934, and is unable to determine if forms were filed on a
delinquent basis or are missing.
11
ITEM 10. EXECUTIVE COMPENSATION
Director Compensation
The following table reflects compensation paid or accrued during the indicated
fiscal years, which end on June 30th of the indicated year with respect to
compensation paid or accrued by Reclamation Consulting And Applications, Inc.
SUMMARY COMPENSATION TABLE
---------------------------- -----------------------
Annual Compensation Long Term Compensation
----------------------------- ----------------------
<table>
<caption>
<s> <c> <c> <c> <c> <c> <c> <c> <c>
Name Annual Restricted All Other
and Year Compen- Stock Underlying LTIP Compen-
Principal Ending Salary Bonus sation Award(s) Options/ Payouts sation
Position 6/30 ($) ($) $ ($) SARs (#) ($) ($)
-------- ----- ------- ------- ------ ---------- ---------- ------- ---------
Gordon 2002 $135,200 0 0 150,000 950,000 0 0
Davies, 2001 $ 93,000 0 0 0 0 0
Pres. 2000 $ 81,000 0 0 0 0 0
1999 $ 60,000 $60,000 0 750,000 0 0
1998 $ 60,000 0 0 0 0 0
Michael 2002 $135,200 0 0 150,000 950,000 0 0
Davies, 2001 $ 93,000 0 0 0 0 0
CFO. 2000 $ 81,000 0 0 0 0 0
1999 $ 60,000 $60,000 0 750,000 0 0
1998 $ 60,000 0 0 0 0 0
</table>
The Company's two principal officers, Gordon Davies, Chief Executive Officer and
a Director, and Michael Davies, Chief Financial Officer, Vice President and a
Director, entered into new Employment Agreements, commencing January 1, 2002,
and having a three year term. The Employment Agreements are identical, and
provide for a base salary of $135,200 for the first year. If the Company
realizes a minimum net profit for its 12 months ended December 31, 2003 of
$250,000 or more, base compensation increases by 20% effective as of the
beginning of the second twelve months of the Contract. If the Company realizes
a net profit of at least $250,000 over the 12 months ended December 31, 2004,
the base compensation increases by an additional 20% over the preceding year's
compensation.
In addition, the Employment Agreements provide for bonuses on a sliding scale
based on the Company realizing net profits each fiscal year. A bonus equal to
10% of the base salary will be paid in any fiscal year in which net profits
equal or exceed $250,000. This percentage increases on a sliding scale as net
profits in any fiscal year over the three year contract term increase above
$500,000, with a bonus equal to 100% of base salary to be paid if the Company in
any fiscal year realizes a net income of $2,500,000 or more.
12
In addition, the Employment Contract grants each employee an additional 950,000
options to acquire the Company's common stock. These options are combined with
550,000 pre-existing options granted under previous contracts with each employee
and reallocated under new vesting terms. Under these terms, for each employee,
500,000 shares vest on January 15, 2002, 500,000 shares vest on January 15,
2003, and 500,000 shares vest on January 15, 2004. The option exercise price is
$.40 per share.
These Agreements have noncompete provisions and various other provisions,
including a death disability benefit of 3 months' pay plus 3 months' benefits.
Copies of each of these Employment Agreements with each executive officer are
attached hereto as Exhibits and by this reference incorporated herein.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the common stock (including common stock acquirable within 60 days
pursuant to options, warrants, conversion privileges or other rights) of the
company as of June 30, 2002 (i) by each of the Company's directors and executive
officers, (ii) all executive officers and directors as a group, and (iii) all
persons known by the Company to own beneficially more than 5% of the common
stock. All persons listed have sole voting and investment power over the
indicated shares unless otherwise indicated.
Name Shares
- ---- -----------
Michael Davies 1,025,807
Gordon Davies 1,017,400
Kurt Baum 2,080,000
Gerald Fuller 1,300,000
Canvasback Company Limited 5,050,000
==========
All Officers and Directors 10,473,207
As a Group
The address for Mr. Michael Davies is 23832 Rockfield Blvd. Suite 275 Lake
Forest, CA 92630
The address for Mr. Gordon Davies is 23832 Rockfield Blvd. Suite 275 Lake
Forest, CA 92630
The address for Mr. Kurt Baum is 680 S. Ayon Avenue, Azusa, CA 91702
The address for Mr. Gerald Fuller is 25001 Sugar Pine Drive Pioneer, CA 95666
The address for Canvasback Company Limited is Hannah - Waver House The Valley,
Anguilla, BWI
13
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Nothing To Report
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are being filed herewith.
3.1 Amendment of the Articles of Incorporation of Recycling Centers
of America, Inc., changing the name of the corporation to
Reclamation Consulting And Applications, Inc.
10.1 Management contract for Mr. Gordon Davies
10.2 Management Contract For Mr. Michael Davies
(b) Reports on Form 8-K. Date of Report: July 8, 2002
Item 4. Changes in Registrant's Certifying Accountant
On July 8, 2002 the Registrant engaged Kabani & Company, Inc.,
Certified Public Accountants, as the Registrant's independent accountants to
report on the Company's consolidated balance sheet as of June 30, 2002, and
the related consolidated statements of income, stockholders' equity and cash
flows for the year then ended. The decision to appoint Kabani & Company, Inc.
was approved by the Registrant's Board of Directors.
The Registrant dismissed Stuart Rubin as its auditors effective July
8, 2002. Stuart Rubin served as the Registrant's independent auditors' for
the Registrant's fiscal year ended June 30, 2001 and 2002, as well as for
previous periods. Stuart Rubin's report on the Registrant's consolidated
financial statements for the registrant's fiscal years June 30, 2001 and 2000
(the "Reports") do not contain an adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or
accounting principles, however, they were modified to include an explanatory
paragraph wherein they expressed substantial doubt about the Registrant's
ability to continue as a going concern.
14
During the Registrant's fiscal year ended June 30, 2001 and 2000, and
during the period from July 1, 2002 until Stuart Rubin's dismissal, there
were no disagreements with Stuart Rubin within the meaning of item 304 of
regulation S-B or any matter of accounting principles or practices, financial
disclosure, or auditing scope or procedure, which disagreements if not
resolved to Stuart Rubin's satisfaction, would have caused Stuart Rubin to
make reference to the subject matter of the disagreements in connection with
its reports.
During the Registrant's fiscal year ended June 30, 2001 and 2000, and
during the period from July 1, 2002 until Stuart Rubin's dismissal, there
were no "reportable events" (as such term is defined in item 304(a)(1)(iv)(B)
of regulation S-B.
During the Registrant's two most recent fiscal years and any
subsequent interim period prior to the engagement of Kabani & Company, Inc.,
neither the Registrant nor anyone on the Registrant's behalf consulted with
Kabani & Company, Inc. regarding either (i) the application of accounting
principles to a specified transaction, either contemplated or proposed, or
the type of audit opinion that might be rendered on the Registrant's
financial statements or (ii) any matter that was either the subject of a
"disagreement" or a "reportable event."
The Registrant has requested Stuart Rubin to review the disclosure
contained herein and has provided Stuart Rubin the opportunity to furnish the
Registrant with a letter addressed to the Commission containing any new
information, clarification of the Registrant's expression of Stuart Rubin's
views, or the respects in which Stuart Rubin does not agree with the
statements contained herein. Stuart Rubin has reviewed the disclosure
contained herein and has provided to the Registrant a letter addressed to the
Securities and Exchange Commission stating that it has reviewed the
disclosure provided in this Current Report and has no disagreement with the
relevant portions of this disclosure, pursuant to the requirements of Item
304(a)(3) of Regulation S-B. A copy of such letter is filed as Exhibit 16 to
this Current Report on Form 8-K.
15
SIGNATURES
In accordance with then requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Reclamation Consulting and Applications, Inc.
/s/ Michael Davies, CFO
--------------------------
Michael Davies, CFO
Date: October 15, 2002